Defense against inflation?

It's looking quite likely that we're facing even more inflation down the road, although the degree of it is hard to predict. Just wondering how other people here are preparing for this, if at all?

Our own preparations have involved keeping out of debt as much as possible. We bought a new house as mentioned in another thread, but we paid for half of it as a downpayment, and bought a relatively inexpensive house below what we could afford, we don't have car payments because we bought a used vehicle and have been maintaining it, and we have no other debt. We've been trying to save money as well, but if we face inflation, then the value of those savings starts to decrease in purchasing power, so unsure if that's the best way to handle that extra money.

You need to use the pantry principle and a price book for all shopping. These are old skills, brought into higher focus during the 1970's, if I recall correctly. Inflation was rampant then and on into the 1980's.

I first read about the pantry principle in a late 70's/early 80's vintage library book that the York library still owned (they didn't de-accession useful books). Basically, when the store does a sale, take advantage of it and buy what you can at the lowest price.

You keep track of the lowest price with your price book. You'll need a small notebook. Devote some space to all the usual things you buy on a regular basis. Keep track of prices using your supermarket fliers. When a given item, such as tuna, goes on sale at the lowest price, buy as much as you can use up within the time period until the next ultra-low price arrives.

It takes a year or more to develop and use your price book but you can start using it right away. Buying at the lower price and stockpiling in your pantry is the ONLY way to avoid the price rises as much as you can other than growing the food yourself.

For every single item you need, including insurance and lightbulbs, you have to consider price and longevity of item. If something falls apart soon after use, was it still the cheapest? It might be, if the replacement cost is still lower than a higher quality but far more expensive item.

Food and clothing are big parts of most people's budget yet they are something that you have a lot of control over.

I go into detail on grocery shopping in my book but if you want my source material, go to Amy Dacyczyn's book The Complete Tightwad Gazette. She spells out how to use a price book, which I combined with the pantry principle I learned from the York library. Amy also uses the pantry principle. They work! But only as much as you do.

Her book is readily available at most libraries, if not on the shelf, via the interlibrary loan. Make sure you get 'The Complete' edition. There are many editions out there but this one combines almost all of her writing.

Her pricing is antique but the advice is timeless.

I just realized I bought your book Suburban Stockade early last year as an ebook, which is why I had forgotten it, because I lose track of my ebooks. I think I will order your book as a print copy as well. I read it for the advice it had about buying houses, which helped our decision on our house quite a lot.

Thanks for the tips about the price book and the pantry principle!

I always appreciate knowing when my advice works!

A note in case you decide to buy another copy: we retitled the book to Fed, Safe, and Sheltered because the new title and cover better fit the contents for marketing purposes. The contents remain the same, other than some typo corrections.

OK, thanks for the heads up - I've just ordered a print copy.

David Trammel's picture

One of the things you can do to fight inflation and make yourself more resilient, is find new streams of income which need low monetary inputs to get started or to keep operating. Writing is one but there are others.

I wanted to put in a plug for Bill and Teresa's newest book "Career Indie Author". They sent me a copy to review and now that I'm back contributing, will be posting the review in the next week or two. Not only is the book great for writers but the advice they give will help any beginning business person set up a good solid foundation for success.

I recommend it highly for all Green Wizards.

Thanks for the recommendation! I had a look, and the book looks good! Once we get settled, I may order it, too, as I have some ideas I'm considering in that vein.

ClareBroommaker's picture

Usually when I read the phrase, "defend against inflation" it is in the context of where to invest money. And the answer always, in the US, seems to be buy stocks, buy US Treasury Inflation-Protected Securities, buy precious metals, buy real estate. Some go further and say get into the commodities markets. Us suckers without money to do such are just out of luck?

However, I've noticed that even Warren Buffet comes to a point of agreement with Green Wizards when he speaks of protecting against inflation. He points out that the know-how you have holds its value, that if you can do things others need to pay for then you will do okay. He says to expand your education (skills, knowledge).

Of course the things you are doing such as insulating your new house protects against inflation. The better insulated, the less you need to come up with ever more money to pay the household energy bills.

For me, I've made some effort to acquire good garden tools that I will need for the rest of my life. Tried to find really sturdy hoes and hoses, ;-) . I've acquired kitchen items that will help me preserve and cook food from the garden or store. I've gotten really thick long sleeve shirts and relatively thick jeans to protect myself when working in the garden so that the chances for one of those ever-higher medical bills is reduced.

I'm protected against inflation in services such as satellite/cable/streaming, smart phone, smart anything simply by not having them in the first place. Hikes in washer, dryer, dishwasher, disposal water softener prices and repairs won't affect me for the same reason. There are so many things one can do without and therefor will not feel cheated when the prices rise.

Yes, exactly. If you're not already rich, commodities and the stock markets are just words.

Improving knowledge and skills, however, always pays off no matter what.
Just paying attention pays off! Why pay for something you're not using?

As for insulating. We insulated our house in Hershey starting the second year. I have NEVER used as much fuel oil to heat the house as I did that very first winter and that was a mild winter.
Prices have gone up and up and up, but my actual fuel oil usage remains so low that I don't qualify for those 'pay-all-year-round' estimate plans. Some of it is how we choose to live but it's mainly the insulation.

If you don't use something, you don't need to pay for it and you're insulated from future price rises.

Thanks a lot for the thoughts! I agree with you that a great way to defend yourself against rising costs is to not have services that you don't really need. We don't have a TV, therefore no cable bills, we avoid anything 'smart' like the plague, and we have slowly been trying to reduce our dependency on technology, although we are quite dependent on it at the moment for work.

My interest in inflation defense is because my wife received a couple of years ago an inheritance, enough for a good sized downpayment on a house. We did buy a house earlier this year, but the purchasing power of her inheritance dropped by quite a bit due to the housing bubble (houses are 35% more expensive than this time last year). It was scary to see inflation at work as month by month house prices climbed.

We didn't buy an expensive house, we purposefully bought something much cheaper than what we could afford so that the downpayment went further. Now that we have a house, I am mainly worried about rising costs of everything else. We don't have any stocks or investments, just some remaining savings for unexpected expenses.

Steve and Annette Economides, longtime thrift writers, had a good list from their first book for how to handle investments.

The order of operations went something like this:

Build an emergency savings account first
Pay off consumer debt first
Pay off mortgage
Build up savings reserve of 6 months salary or more
Invest in conservative mutual funds when you have free cash to do so

They do suggest (and I agree) that if your company matches funds for investing in mutual funds, then and only then should you put money into the fund at the maximum your company matches. You are in effect doubling your money with the matching funds.

Otherwise, emergency funds and debt servicing come first.
This is a starting point and it may not work for everyone so adjust as you see fit.

I always recommend using price books, the pantry principle, and paying careful attention to your shopping.

You'll sometimes see claims that you can "Cut Your Grocery Bills in Half!"
For some people, that's true, but that is because they are such terrible shoppers to begin with. If your shopping is completely impulse-driven, making a list will save you money.

If you're already paying attention, you won't save as much.
If you're ninja-level, you'll save a few percentage points.

It all depends on your starting point.

The only way I know to use inflation to your advantage is via high-interest Certificates of Deposit (CD's).
My mother was supremely successful but she is an outlier and times have changed.

My mother was and is a hardcore saver. Debt terrifies her. She always spent as little as possible and she saved, no matter how poor we were. A dollar here, a dollar there. Over time, it built up and yeah, she could have been looser. No question.


She started accumulating funds in the early 70's when she got a better job. She began buying CD's. She noticed that the larger amount she put down led to larger interest payments.
By the 80's, CD's were paying amazing interest rates. She'd always roll them over to get the higher rate.
Decades later, the bank was begging her to cash in her CD's so they wouldn't have to pay those 12% interest rates! As long as she could, she took advantage of contracts that let her roll them over at the same rate.

Those situations aren't in place anymore and I don't think you can build up an estate by investing in high-value CD's. Certainly not now in these days of .25% interest if you're lucky.

That said, the only reason my mother was able to do this was through strict self-discipline when it came to spending. She couldn't have invested any money if she hadn't saved it up in the first place.

Thanks so much for the continued suggestions!

One way I've seen to avoid inflation is to be used things. When we moved into our new house, we bought many old pieces of solid wooden furniture, better quality than a great deal of new furniture. The prices for this furniture were very low in comparison to new furniture. So it appears by doing so, we avoided rising prices. The reason it works in the furniture case is because most people here don't like the style of old furniture, so there's quite a glut of these great looking (to me), solidly constructed, and good quality furniture pieces coming on to the used market.

We saved a bundle even on the sofa, armchair and dining room table and chairs we picked up. Total cost: about $650 CAD. Buying all this new would have cost a couple of thousands dollars easily. Buying used is always cheaper than buying new things, of course, but as prices start to rise, I think the difference will become even more apparent.

lathechuck's picture

... for those of us fortunate enough to have funds to invest, I suggest looking at US Treasure I-Series Savings Bonds. They're intended for small-time investors, so you can buy no more than $10,000 per year. You can buy them at any time, for any amount over $25. The interest rate, currently, is simply the CPI-U inflation estimator, so recent bonds are paying 3.5% (risk-free). (You may argue that the CPI-U underestimates true inflation, and you're right.) Where else can you earn 3.5% without risking a turn of the markets? You can only buy I-bonds from the Treasury, and only sell them back to the Treasury, which means that there's no "newsworthy" trading action or middle-man fees to support professional "advisors". 20 years ago, when I-bonds were new, and no one was worried about inflation, bonds were sold with a 3.5% guaranteed fixed rate of interest + the inflation-indexed part. So, my oldest I-bond is now paying 7%! (Could I have made more in stocks? Yes, and I did. I-bonds are just part of the pool.)

As for precious metals (gold, silver, etc.): the people who are most vocal about their value always seem to have some that they're trying to SELL. Why is that? Personally, I wouldn't trust anyone else to guard my gold, if I had any, and I wouldn't want it in my house to tempt thieves. So I have two sufficient reasons NOT to have precious metals in my investment pool.

I have, however, invested in cast iron and tool steel, in the form of garden and workshop tools.

I invest in continuing education to extend my professional career as far as possible. I see that many of my peers are retiring, but they're looking back at the good years of their parents' retirement, not the hard years ahead.

Work if you can, save if you can, and invest to preserve what you've saved. The only people who make money in finance are the specialists, and they ain't us.